We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies. You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

The home improvement retailer has enjoyed somewhat of a charmed life following the 2008 recession, rising 360% in the five-and-a-half years from 2009 onwards. However, there are clearly some chinks in its armor, with March to April seeing a circa 10% selloff which highlights potential weaknesses in this story.

The firm specialises in providing building and home improvement materials which is no doubt tied into the strength of the US housing market. As the country has dusted itself off following the subprime crisis, Home Depot has capitalised on the growth of home sales driven largely by low mortgages and an increase in employment nationally.

The problem is that the recent selloff in Home Depot highlights the worries that are beginning to creep in for investors with interest rate hikes seemingly not too far away. This is likely to put the buffers on the housing market, and with higher mortgage rates come increased payments and a reduction in dispensable income.

It is also worth bearing in mind that the recent weakness is in line with the impact that the adverse weather conditions in Q1 will have had upon sales. For that reason, we do expect to see earnings rise when they are released on Tuesday 19 May. Markets are expecting to see earnings per share of $1.15, compared with $0.96 seen this time last year.

Whether we are going to see this long-term trend begin to weaken is not known, yet with the housing market likely to begin weakening once rate hikes hit, along with an economy that has shown signs of slowing somewhat, there is the possibility that it has been in somewhat of a sweet spot up until March.

Technically speaking, the recent move lower has created a new lower low and lower high which is a big warning sign. Alongside that, the price has clearly found resistance upon the 50-day simple moving average (SMA) which has been one of the most consistent providers of support in the past year. Thus I expect to see price continue lower as long as we are below the 50-day SMA with a move down towards the previous swing lows of $105.00 likely.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

CFDS are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

The information on this site is not directed at residents of the United States and Belgium, or any particular country outside Switzerland and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.